Revenue Ruling 83-62 answers a single question about third-party sick pay: when an insurance company or administrator pays taxable disability benefits to someone else’s employee, who owes the employment taxes and who reports the wages? The default rule is that a non-agent third party, such as an insurer that bears risk, is liable for both the employee and employer shares of FICA and FUTA and must report the wages itself. The third party can shift the employer’s share back to the employer, but only by meeting three specific conditions.
When the Ruling Applies
The ruling governs payments made to an employee during a temporary absence from work for sickness, injury, or disability, when the payer is someone other than the direct employer. Disability retirement benefits and direct reimbursements of medical expenses fall outside this definition.
Whether employment taxes are owed at all depends on who paid the premiums for the underlying disability policy. If the employee paid every premium with after-tax dollars, the benefits are not taxable and no FICA or FUTA applies. If the employer paid the premiums, or the employee paid through pre-tax payroll deductions, the benefits are taxable wages and Revenue Ruling 83-62 becomes relevant. Where employer and employees split premium costs, only the portion attributable to the employer’s contributions over the three preceding policy years is taxable.
Agent Versus Non-Agent
Everything downstream turns on this distinction. An agent is a third party that bears no insurance risk and is paid on a cost-plus-fee basis, typically a pure administrator. An insurance company that collects premiums and assumes risk is not an agent.
An agent is not treated as the employer. All employment tax responsibilities stay with the employer: withholding, deposits, Form 941, and Form W-2. The employer and agent may formalize the arrangement with IRS Form 2678, which lets the agent file returns and make deposits on the employer’s behalf, but the employer remains legally liable regardless.
A non-agent third party, by default, is treated as the employer for these payments. It must withhold the employee’s share of Social Security and Medicare, deposit those amounts, withhold federal income tax if the employee has requested it on Form W-4S, and pay the employer’s share of FICA and FUTA. This default is what puts insurers on the hook for the full employment tax bill unless they take active steps to shift part of it back.
How a Non-Agent Shifts the Employer’s Share Back
A non-agent third party can transfer the employer’s portion of Social Security, Medicare, and FUTA to the employer, but only by meeting all three of the following requirements. Miss any one and the transfer fails entirely; there is no partial shift.
- Withhold the employee’s share of Social Security and Medicare tax from each sick pay payment.
- Deposit those withheld amounts with the IRS on schedule.
- Notify the employer of the sick pay payments and the taxes withheld, within the same deadline that applies to depositing the employee’s FICA taxes.
The notification deadline is where transfers most often break. It tracks the employee-FICA deposit schedule, not the quarterly return, so a third party operating on a semi-weekly schedule has only days to get the notice out. When the transfer succeeds, the third party must also furnish the employer with a sick pay statement by January 15 of the year following payment, listing each employee’s name and Social Security number, total sick pay disbursed, and taxes withheld.
When the transfer fails, the third party keeps the employer’s share and must report the wages on its own Form 941 and Form 940.
The Six-Month Window on FICA and FUTA
Whatever liability the two parties are allocating exists only for a limited period. FICA and FUTA apply to third-party sick pay only during the first six calendar months after the last calendar month the employee worked for the employer. Payments made after that window are excluded from the definition of wages for both taxes, under IRC Section 3121(a)(4) for FICA and IRC Section 3306(b)(4) for FUTA.
Inside the window, standard rates and caps apply. For 2026, Social Security is 6.2% each for employer and employee up to $184,500 in wages, Medicare is 1.45% each with no cap, and employers must withhold an additional 0.9% Medicare tax on wages above $200,000. FUTA is 6.0% on the first $7,000 of wages per employee, with an effective rate of 0.6% for employers eligible for the full state unemployment credit.
Outside the window, payments may still be subject to federal income tax withholding if the employee has filed Form W-4S, but the FICA and FUTA obligations end. Tracking the exact calendar month the employee last worked matters: an off-by-one error can pull payments into or out of the taxable window and trigger deposit penalties.
Reporting After You Know Who Holds Liability
Reporting follows the liability allocation.
If the non-agent third party keeps the full obligation, it does all the reporting under its own EIN: Form 941 for the wages and withholdings, and a Form W-2 to the employee showing the third party as the employer. The original employer reports nothing for the sick pay.
If the transfer succeeds, reporting splits. The third party still deposits the employee’s share of FICA and any income tax withheld, using its own EIN. The employer reports the sick pay wages on its Form 941 and pays the employer’s share of FICA and FUTA. The parties coordinate on the Form W-2 so the employee sees accurate figures without double-counted wages.
Whenever the employer’s tax liability and the W-2 reporting sit with different entities, Form 8922, Third-Party Sick Pay Recap, ties the records together for the IRS. Which party files it depends on whose name and EIN appear on the W-2. If the insurer or agent issued the W-2 under its own name and EIN, the employer files Form 8922. If the W-2 carries the employer’s name and EIN, the insurer or agent files it.
Deposit Deadlines and What a Failed Transfer Costs
Whichever party holds the liability follows the ordinary deposit schedule in IRS Publication 15, monthly or semi-weekly depending on the payer’s history. Late deposits draw penalties that escalate by the length of the delay:
- 1 to 5 days late: 2% of the undeposited amount.
- 6 to 15 days late: 5%.
- 16 or more days late: 10%, if deposited before the IRS issues a notice demanding payment.
- Amounts unpaid more than 10 days after the first IRS notice: 15%.
Penalties run per deposit, so multiple misses in a single quarter stack. For a non-agent trying to transfer the employer’s share, the risk concentrates in the notification step: the notice to the employer must clear within the same window as the employee-FICA deposit. Blow that window and the transfer fails, the third party keeps the employer’s share for those payments, and any deposits made on the assumption of a successful transfer are now late.
The other recurring failure is silent: neither side realizes it holds the liability, deposits go unmade, and wages go unreported on any Form 941. An annual reconciliation between the third-party payer and the employer, done before the January 15 sick pay statement deadline, catches most of these gaps in time.